GBP CAD Climbs Following Poor Canadian Inflation Print

September 25, 2017 - Written by Toni Johnson

STORY LINK GBP CAD Climbs Following Poor Canadian Inflation Print

The Pound to Canadian Dollar exchange rate soared on Monday as markets continued to digest last week’s disappointing Canadian inflation figures and this week’s tenuous win for Angela Merkel.

Canadian Data Disappoints, GBP CAD Capitalises

Last week’s Canadian data prints proved somewhat disappointing for investors as the core inflation figure remained steady at 0.9% year-on-year in August – the same as the previous three months and the lowest annual print since February 2011.

The BoC tends to look to the core figure for guidance on monetary policy, so this result quickly drove demand away from the ‘Loonie’.

The headline inflation figure, however, did demonstrate a rise by printing at 1.4% year-on-year, up from the previous period’s 1.2% but below the market consensus of 1.5%.

This rise was predominantly due to a surge in gasoline prices and homeowner replacement costs, though it was not enough to prevent the ‘Loonie’ from briefly dipping.

Whilst the Canadian Dollar did suffer towards the end of last week, it has since rallied somewhat on the announcement that crude oil prices have reached a 7-month high following comments from major oil producers in Vienna.

The Organisation of Petroleum Exporting Countries (OPEC), Russia and various other producers revealed that they have successfully cut production by some 1.8 million barrels a day since the beginning of 2017 – activity that successfully lifted oil prices by some 15% over the past quarter.

Essam al-Marzouq, Oil Minister and Chair of Friday’s meeting in Vienna stated that output curbs helped cut global crude inventories, thus successfully reaching the OPEC’s stated target. This news did bolster the Canadian Dollar against the majors, though it was not enough to swing things back in the ‘Loonie’s’ favour against Sterling.

Pound (GBP) Capitalises on Tenuous Merkel Win

The Pound’s current lead against the majors has primarily been afforded by the recent weakness of the Euro, a currency currently in flux following Angela Merkel’s tenuous win in the German General Election.

Whilst Merkel’s Christian Democratic Union (CDU) did win the most votes, it lost some –8% of the voter share this time as citizens turned instead to the Alternative für Deutschland Party (AfD) and the Free Democratic Party (FDP).

The Social Democratic Party (SDP) also experienced its worst result in post-WWII history, only gaining some 20% of the vote and announcing that they will no longer stay in coalition with winner CDU.

This has left somewhat of a void in Germany’s political sphere, forcing Merkel to consider coalitions with less popular groups like the Green Party or the FDP – groups that aren’t necessarily regarded as having the same financial ‘safe-hands’ as perhaps the CDU.

Furthermore, investors are panicked somewhat by the uncertainty that has resulted from this election and the fact that the AfD – a party that is adamantly Eurosceptic – has gained a large amount of seats.

Ultimately the election has fostered a great deal of uncertainty regarding the future of the Eurozone’s economy, uncertainty that has driven markets to the currently more favourable option that is the Pound Sterling.

GBP CAD Forecast: Volatility Ahead on Carney Speech

Sterling’s lead may prove volatile this week depending on the content of Bank of England (BoE) Governor Mark Carney’s speech on Thursday and indeed the large amount of Eurozone data releases.

Markets are currently betting that the Monetary Policy Committee (MPC) will vote for a 0.25% increase in interest rates in November, pushing back from August 2016’s post-Brexit cut and landing rates officially at 0.50%.

Whilst this is a small leap, it would still signify the beginning of perhaps a stricter hand in monetary policy from the MPC and drive demand back to the Pound Sterling.

In this respect, a repeat of hawkish sentiment from Carney on Thursday will likely send the Pound soaring, whilst a more cautious, dovish shift would have the opposing effect.

Markets will also be keeping an eye out for revelations regarding Germany’s election, with decisions regarding Merkel’s coalition liable to hamper or heal the single currency.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Canadian Dollar Forecasts